Liquidity

Market liquidity reflects the ability of investors to purchase and sell assets at stable prices. Liquid markets allow investors to buy and sell assets quickly without experiencing a significant alteration in price for those assets. Illiquid markets generally result in a price drop when assets are purchased and sold with speed.

Investment liquidity reflects the ability of a portfolio to be converted to cash with minimal or no loss in overall value.

Accounting liquidity reflects the ability of an individual or organization to convert their current assets in ways that meet their current liabilities.

EXAMPLE:

Boy: “I need you to pay me back tomorrow for the cookie I bought you yesterday at lunch.”